2024 (4) TMI 457 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Addition being 0.5% of average value of investments appearing in the balance sheet as expenditure incurred for earning dividend income - HELD THAT - In the case of Joint Investment Pvt. Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT held that the disallowance u/s 14A r/w Rule 8D cannot exceed more than the exempt income. In so far as the contention of the Ld. DR that the amendment brought in by the Finance Act 2022 to section 14A is concerned we observe that the Hon ble Jurisdictional High Court in the case of PCIT Vs. M/s Era Infrastructure (India) Pvt. Ltd. 2022 (7) TMI 1093 - DELHI HIGH COURT held that the said amendment which was brought in by the Finance Act 2022 is for removal of doubts and therefore cannot presumed to be retrospective. Therefore we restrict the disallowance u/s 14A read with Rule 8D(2)(iii) to Rs. 930/- which is the exempt income earned by the assessee during the year under consideration. This ground is partly allowed. Disallowance u/s 40(a)(ia) - non-deduction of TDS on interest paid by the assessee - contention of the assessee that the AO disallowed not only the interest but also processing fee and pre-closure charges treating them as interest for non deduction of TDS - HELD THAT - Assessing Officer shall examine all the above contentions of the assessee and should decide afresh keeping in view the decisions of Ansal Landmark Township P. Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT and Dr. Jaideep Kumar Sharma 2015 (11) TMI 1638 - DELHI HIGH COURT wherein held that as long as the payee/resident has filed its return of income disclosing payment received and has also paid taxes on such income the assessee would not be treated as a person in default - Thus this issue in ground is restored to the file of the AO for deciding afresh - Assessee ground allowed for statistical purpose.

Summary

Issues involved:
The issues involved in this case are:
1. Disallowance of expenses u/s 14A read with Rule 8D of the Income Tax Rules, 1962.
2. Disallowance of interest paid by the assessee u/s 40(a)(ia) of the Act.
3. Levy of interest under section 234A, 234B, and 234C of the Act.

Issue 1: Disallowance of expenses u/s 14A read with Rule 8D of the Income Tax Rules, 1962:
The assessee challenged the disallowance of Rs. 11,12,486/- under Rule 8D(2)(iii) of the Income Tax Rules, contending that the disallowance cannot exceed exempt income. The Jurisdictional High Court held that the amendment to section 14A brought by the Finance Act, 2022, is not retrospective. Therefore, the disallowance was restricted to Rs. 930/-, which was the exempt income earned by the assessee during the relevant year. This ground was partly allowed.

Issue 2: Disallowance of interest paid by the assessee u/s 40(a)(ia) of the Act:
The assessee disputed the disallowance of Rs. 71,40,344/- for non-deduction of TDS on interest paid. The assessee argued that the interest paid was only Rs. 54,77,288/- and not the disallowed amount. The assessee also provided certificates from Bajaj Finance Ltd. certifying the interest paid. The Hon'ble Delhi High Court held that as long as the payee has filed its return of income and paid taxes on the income received, the assessee would not be treated as a defaulter. The case was remanded to the AO for fresh consideration in light of the court decisions. These grounds were allowed for statistical purposes.

Issue 3: Levy of interest under section 234A, 234B, and 234C of the Act:
The assessee contested the levy of interest under these sections, arguing that they were not applicable in the circumstances of the case. However, no specific details or arguments were provided in the judgment regarding this issue.

In conclusion, the appellate tribunal partially allowed the appeal of the assessee concerning the disallowance of expenses under section 14A and remanded the issue of disallowance of interest paid for fresh consideration by the Assessing Officer in line with the decisions of the Delhi High Court. The judgment did not provide detailed information on the challenge to the levy of interest under sections 234A, 234B, and 234C of the Act.